Fertiliser crisis amid Russia-Ukraine war

Russia and Belarus generate significant amounts of all three primary fertiliser nutrients. In 2020, Russia accounted for 14% of world urea commerce and 11% of global phosphate trade, while Russia and Belarus, both accounted for 41% of global potash trade. Because a limited number of nations generate the majority of internationally marketed fertilisers, the industry is subject to trade shocks. Russia banned hundreds of exports in reaction to economic sanctions imposed by the international community after the invasion. While fertiliser exports were not formally prohibited, Russia's Ministry of Industry and Commerce advised fertiliser firms to halt shipments due to shipping concerns temporarily. This was Russia’s way of making a statement about its influence. Russia later announced additional fertiliser export limitations that would extend until May 2023 to ensure an adequate supply for domestic farmers. Moreover, shipping businesses and Western financing and vessel insurance firms avoided Russia due to international financial sanctions and safety concerns. As a result, the fertiliser prices worldwide reached all-time highs in March 2022. According to the World Bank, worldwide fertiliser costs climbed by 30% by early 2022, following an 80% increase in 2021. This disrupted the economies, the supply chain, food security, agriculture and the geopolitics.

DISRUPTIONS IN THE GLOBAL FERTILISER PRODUCTION

During the 1960s, synthetic fertilisers helped quadruple the world grain output. Nevertheless, generating fertiliser components such as nitrogen necessitates needed the use of resources like natural gas and certain elements like phosphorus and potassium. A few countries in the world have the perfect combination of materials and natural gas supply to produce fertiliser with cheap investment. China, Russia, the United States, India, and Canada are the world's top five fertiliser producers, whereas Russia, Canada, the European Union, China, and Belarus are the top five exporters. During mid-2020, the COVID-19 lockdowns caused workforce shortages that hampered natural gas production, causing disruptions in the worldwide fertiliser supply chain. Further problems occurred in February 2021, when a harsh winter blanketed the southern Plains of the United States and froze natural gas wells. Then came, the hurricane Ida, that slammed the southern United States in late August 2021, affecting natural gas and fertiliser output. China, the world's top phosphorus exporter, established limitations limiting foreign phosphorus imports in autumn 2021, with the quotas initially expiring in June 2022. The limits were then extended through the end of the year and until the middle of 2023. These natural gas shipments then got affected due to the Russia-Ukraine conflict. Russia froze natural gas deliveries to Bulgaria and Poland in April 2021, to Finland and the Netherlands in May, and Latvia in early August. It also decreased the flows to the rest of Europe, leading European natural gas prices to skyrocket, forcing at least ten of Europe's fertiliser facilities to stop or curtail operations in July 2022 alone.

Farmers looking to price or book their fertiliser needs early for next year's crop were discovering that suppliers have increasingly changed to a just-in-time pricing system due to restricted supplies and an unpredictable geopolitical climate. Meanwhile, the fertiliser price shock has heightened interest in high-tech precision-application tools and equipment that could reduce the amount of fertiliser required, as well as biotech solutions such as nitrogen-producing microbes that can add nutrients to the soil without the use of natural gas during production. This was accepted as a safe remedy to be followed in coming years to not face trade issue.                                                                                                                                                                                                                                        

IMPACT ON THE GLOBAL SUPPLY

According to International Food Policy Research Institute (IFPRI) research, potash exports from Belarus will be at least 50% lower in 2022 than in 2021 due to sanctions and restrictions on entering European Union territory for transit. While overall Russian urea and potash shipments fell between January and August 2022 compared to the same period in 2021, they recovered in the second half of the year. The closure of the Tolyatti ammonia pipeline to Odesa contributed to a 63% drop in Russian ammonia shipments from January to August 2021. Some part of the fall may also be attributed to "over-compliance" with the sanctions. Export restrictions established by certain governments wanting to keep domestically produced fertiliser available for home consumption also disrupted global markets. Outright prohibitions or onerous inspection and licencing procedures were among them. In June 2022, IFPRI anticipated that such limitations would affect 20% of global fertiliser trade.

Major fertiliser importers who faced a supply shortage from Russia and Belarus tried to get supplies from other sources. Brazil, the world's second-biggest potash importer, increased imports from Canada to offset the loss from Belarus. Then, Morocco, the world's fourth-largest ammonia importer, increased imports from Saudi Arabia and Egypt to compensate for Russian deficiencies. Meanwhile, certain regions' production capacity expanded in tandem with exports, including potash from Canada, phosphate from Morocco, and urea from Nigeria. Meanwhile, Russian fertiliser shipments expanded considerably in other areas, including India. However, because of issues with fertiliser supplies following the invasion, small, low-income countries in Sub-Saharan Africa (SSA) found it much more challenging to get fertilisers.

While the International Fertilizer Association (IFA) predicted a 5% global decline in fertiliser consumption in 2022, the International Fertilizer Development Center estimated that consumption in SSA outside of South Africa may have declined by up to 25%, returning the continent to consumption levels seen in the mid-2010s. Looking at last year’s levels, some of these predictions turned out to be correct.

IMPACT ON AGRICULTURE AND FOOD SECURITY

Evaluating the impact of the fertiliser crisis, notably lower demand, on crop yields is difficult, particularly in regions with many smallholder farmers. Yield consequences vary not just based on the amount utilised but also on fertiliser selection. Farmers prefer nitrogen at periods of high prices, resulting in a sharper global fall in demand for potash and phosphate. The effects of reduced nitrogen usage on yields can be seen during the same growing season, but reduced potash and phosphate use on yields and soil health may take many years to manifest.

Several factors influence production: climatic and weather-related catastrophes such as droughts and floods and substantial post-harvest food losses can reduce output even when adequate fertilisers have been applied. Fertilisers are also used to grow non-food crops, such as biofuels. World biofuel production has continued to grow, but at a slower rate since 2020, and is still mostly based on food crop feedstocks rather than advanced non-food crop feedstocks (Figure 4). For example, about 38% of the maise harvest in the United States is utilised as feedstock for biofuel production, while vegetable oils are expected to account for roughly 23% of biofuel feedstocks globally by 2027.

IMPACT ON INDIA

India imports plant nutrients, either completed or as raw materials and intermediates. These imports from Belarus and Russia meet India's annual requirement for 30 lakh tonnes of potash. The war with Ukraine has caused nations such as India, which uses potash, phosphate, and nitrogen fertilisers, to seek other supplies, especially because Russia blocked fertiliser imports in response to Western sanctions. Due to the lack of a coherent policy in India, several major domestic fertiliser companies, like Tata Chemicals and the Aditya Birla Group, withdrew or reduced their national operations. To defend the reduction, they highlighted causes such as urea abuse, delays in subsidy payments to growers, and a lack of investment in the industry. All of this turned out to be an extremely precarious situation for India.

In a seller's market, India was urged to rely less on floating import tenders, which only would push up global prices more. A preferable alternative for India was to use government channels to deal directly with Canada, Israel, and Jordan for potash and Saudi Arabia, Morocco, Senegal, Tunisia, Togo, and Egypt for phosphates. This did come out as an excellent opportunity for India to strengthen its bilateral economic and trade relations with these countries. Another option has been to launch a campaign far ahead of the season to encourage farmers to limit their use of urea, DAP, and MOP in favour of complex fertilisers with lower but more balanced nutrient content. The maximum retail price of urea has been constant since November 2012. Today, a 25% increase is required to prepare farmers for ultimate price deregulation and a flat per-acre subsidy system.

ANALYSIS

Throughout 2022 and into 2023, worldwide prices fell, and fertilisers were more widely available in global marketplaces, but many African nations remained unaffordable owing to consistently high local price inflation. Even without price pressure, fertiliser prices in Africa are often higher than in the rest of the globe, owing to considerable transportation infrastructure and regulatory obstacles.

Eliminating existing export restrictions and avoiding new ones should have been a top priority. Export restrictions, demanding inspection and licencing procedures, and fines that limit availability all contributed to supply interruptions and raise market prices. In the face of unpredictable supply and variable pricing, Low and low Middle Income Countries (LMIC) governments should have endeavoured to guarantee that Small and Medium sized Enterproses (SMEs) in the fertiliser value chain continue to have access to funding to ensure fertiliser blending and distribution. In this era of increased food poverty and market volatility, reliable and timely information on fertiliser supplies, including government or private sector stockpiles, is critical.

Budget limitations and a shortage of foreign cash made financing more expensive fertiliser imports problematic. Subsidy bills soared in certain countries, becoming unsustainable in some situations. Nonetheless, worldwide organisations' aid has made an impact. Foreign development institutions such as the World Bank and the African Development Bank provided finance and aid but that was not enough. In contrast, other efforts such as Sustain Africa, which was also sponsored by fertiliser industry donations, sprung up to assist in routing fertilisers to African countries in need. The World Food Programme, which typically delivers food aid, also offered to transport fertilisers given by a Russian fertiliser business at no cost.

WAY FORWARD

After recent record-high fertiliser costs, the global fertiliser industry may be entering a new era. Fertilizer manufacturers are in the process of decarbonizing, which will have a significant impact on how nutrients are generated in the future. Before, fertiliser firms believed that investments in their facilities were very straightforward: an investment of a particular amount would get a specific amount back. With the increased expenses of decarbonization, the position is less black and white. A local approach to rules, incentives, and renewable energy economics will drive future expansions. In 2023, global fertiliser output is predicted to rise by 2%, with urea capacity increasing by 2% and phosphorus production increasing by 7%. Potash output is predicted to reduce by roughly 14%, although only by about 5% compared to 2019. Food security in low-income nations necessitates large and persistent investment in agricultural productivity. Availability to fertiliser is only one component of what is required; genetic enhancements in cereals and cattle, investment in technology, Extension financing, infrastructural upgrades, and risk mitigation items are also required. These investments will safeguard already vulnerable people, communities, and regions from future catastrophes.

REFERENCES

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Pic Courtsey-Md Mahdi at unsplash.com

(The views expressed are those of the author and do not represent views of CESCUBE.)